The City watchdog has slashed the number of secret investigations it carries out on financial firms despite taking on sweeping powers to protect customers and prevent scandals, The Mail on Sunday can reveal.

The news comes as the Financial Conduct Authority (FCA) comes under mounting pressure from ministers to adopt a more light-touch approach to regulation to boost anaemic growth.

Rachel Reeves has claimed that onerous rules and red tape are ‘a boot on the neck’ of businesses that risked ‘choking off’ innovation without bold reforms.

The Chancellor’s comments earned a rare rebuke from Bank of England Governor Andrew Bailey, who warned against stripping back regulation too far.

But the FCA’s latest figures show the number of deep-dive investigations into regulated firms fell to 31 in the year to March, the lowest in eight years.

The figure was 83 two years ago when new consumer duty rules to shield the public were introduced, prompting claims that the FCA’s function was being ‘quietly run down’.

Known as ‘skilled persons reports’, the FCA’s rarely publicised assessments are done by external experts to highlight gaps in the systems firms put in place to detect and stop crimes such as fraud and money laundering.

Their importance was highlighted last week when shares in the wealth manager Rathbones fell sharply after a skilled persons review unearthed shortcomings in the due diligence checks it was carrying out on new clients.

In response Rathbones voluntarily paused taking on clients that needed extra due diligence checks and said it would stop taking money from the most high-risk of its 119,000 customers in a move that could cost it £1billion.

The review also revealed gaps in how Rathbones implemented new consumer duty rules and it said it would stop charging fees on cash held in client portfolios.

Critics of the FCA, which has a budget of almost £800million, say it has plenty of money to carry out more reviews, but is choosing not to.

Consumer duty rules oblige firms to prove, rather than just assert, they are delivering good outcomes for customers, but ‘we’re seeing less independent digging to test that, not more,’ said Andy Agathangelou, founder of the Transparency Task Force campaign group. 

‘You can’t build a thriving financial sector on declared good behaviour and voluntary promises – somebody has to go in and check, properly, on terms they don’t control. This function is being quietly run down at exactly the moment the FCA is leaning hardest on growth as its calling card.

‘Consumer protection and a successful sector aren’t in tension. The trust deficit when scrutiny like this disappears is itself the economic problem.’

The collapse in the number of investigations comes after MPs called for a public inquiry into financial conduct regulation. 

They found a ‘recurring pattern of financial scandals’ that was ‘not accidental or isolated’ but structural, with ‘early warning signs ignored, whistleblowers marginalised, regulatory intervention delayed and consumers suffering catastrophic losses’.

The FCA, run by Nikhil Rathi, said its latest figures covered a range of issues, with financial crime accounting for more than 40 per cent, reflecting its importance as a priority area.

‘We have a wide range of tools and take the most proportionate approach based on the risks we identify,’ the FCA said. ‘The number of reviews varies year-to-year, depending on where we see the greatest potential harm to consumers and markets.’

Rathi recently confirmed a shift in the FCA’s approach, telling a podcast it would mean ‘less rules in the future because we think the consumer duty will do a lot of the work for us’.